Using disaggregated sectorial data, this study shows that rising levels of remittances have spending effects that lead to real exchange rate appreciation and resource movement effects that favor the nontradable sector at the expense of tradable goods production. These characteristics are two aspects of the phenomenon known as Dutch disease. The results further indicate that these effects operate more strongly under fixed nominal exchange rate regimes.

The authors thank M. Laurel Graefe and Sergio Guerra for research assistance. They also thank Diego Vacaflores and participants at the Atlanta Fed’s "Remittances and the Macroeconomy" conference for helpful comments. Part of this work was completed while Federico Mandelman was visiting the Corporación Andina de Fomento, and he gratefully acknowledges their hospitality. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.